Saturday, December 31, 2011

Million-Dollar Nurses Show U.S. Payroll Struggle - (www.bloomberg.com) California (BCAX) has paid Lina Manglicmot $1.5 million since 2005, an average of $253,530 a year, to work as a prison nurse in the agricultural town of Soledad. Manglicmot is one of 42 state nurses who each made more than $1 million in those six years, mostly by tapping overtime, according to payroll data compiled by Bloomberg News. Together, those nurses collected $47.5 million. In 2008, Manglicmot was paid $331,346, including $211,257 in overtime. The extra pay that allows some nurses to triple their regular compensation underscores a broader trend in California, where government workers are paid more than in other states for similar duties and civil-service job protections hamper efforts to close budget gaps. Governor Jerry Brown said this week that revenue will fall short of expectations, triggering $1 billion in cuts to school busing, libraries and care for children, the elderly and the disabled, among other programs.

Analysis: Emerging borrowers face rollover risk, default threat - (www.reuters.com) Scarce dollar funding and a retrenchment in bank lending will force up premiums for emerging market countries and companies refinancing debt next year, adding to strains on public finances and potentially triggering a surge in corporate defaults. JPMorgan calculates that emerging sovereign debtors will need to find $63.6 billion to cover coupon and redemption payments in 2012 while corporates must raise $107 billion. Total issuance should be around $245 billion, the bank forecasts. Such volumes would not usually portend difficulty -- even this year, emerging bond issuance has been over $250 billion, not far off last year's record. But with markets still awaiting a solution to the euro zone's debt crisis, 2012 could be tough for entities that need to refinance debt or secure new money.

MF Global Used Customers’ Money Days Before Company’s Failure, CME Says - (www.bloomberg.com) MF Global Holdings Ltd. used about $700 million of customer funds to “meet liquidity issues” in the days prior to its bankruptcy, according to CME Group Inc. (CME), which had auditing authority over the failed futures broker. CME Group detailed its dealings with MF Global in documents released yesterday by the oversight panel of the House Financial Services Committee. Christine Serwinski, chief financial officer for North America at MF Global, and Edith O’Brien, a treasurer, told Mike Procajlo, an exchange auditor, at around 1 a.m. on Oct. 31 in Serwinski’s Chicago office that the customer money was transferred on Oct. 27 and Oct. 28 and possibly Oct. 26, according to a CME Group timeline.

Spain Unpaid Bills May Haunt Rajoy as States Crave Liquidity - (www.bloomberg.com) Spanish Prime Minister-electMariano Rajoy is set to inherit billions of euros of unpaid bills along with the euro region’s third-largest budget deficit. Spain’s 8,000 municipalities and 17 semi-autonomous regions are suffering from a cash squeeze as many are shut out of markets, prompting them to delay paying suppliers. Regions’ debt rose 1.5 percent to 135 billion euros ($176 billion) in the third quarter the Bank of Spain said today. Catalonia had the highest debt, at 39.3 billion euros. Companies are being paid 157 days late on average, about three times the legal payment delay, according to the Platform Against Late Payment, a federation of employer groups, and pharmaceutical companies say they are owed 5.83 billion euros by public hospitals. While Rajoy has pledged to help local administrations pay suppliers, that may add to the state’s debt burden and undermine efforts to lower sovereign borrowing costs.

French attacks on UK grow louder - (www.ft.com) The governor of France’s central bank has said Britain is more deserving of losing its top-notch credit rating than France as Paris braces itself for a potential downgrade of the country’s triple A status. Christian Noyer, head of the Bank of France, said a French downgrade would not be justified on economic fundamentals. On that basis, he said: “They should begin by downgrading the United Kingdom which has bigger deficits, more debt, higher inflation, less growth than us and where credit is shrinking.” Accusing the agencies of being driven by political factors, Mr Noyer said they had become “incomprehensible and irrational”. “They launch threats, even though [eurozone] states have taken strong and positive decisions ... a downgrade does not seem to me justified based on economic fundamentals,” he told Le Télégramme newspaper in Brittany.

Friday, December 30, 2011

A Bubble Down on the Farm? - (online.wsj.com) Farmers like Terry Pratt are a big reason Midwest farmland prices seem to be defying gravity—for now. Inside the tidy red-brick community center here, a hushed crowd of town merchants and growers watched as two of their own bid against each other at an auction for 50 acres of corn and soybean land. With slight nods and the waggling of a finger, the rivals yanked the price higher and higher as auctioneer Troy Louwagie chanted into his hand-held microphone: "Will you give 61 and 62, and a two and a two?

ING Cuts Staff in New York, Mexico From Emerging-Market Dollar Debt Group - (www.bloomberg.com) ING Groep NV (INGA), the biggest Dutch financial services company, cut jobs from its Latin America dollar-denominated debt group in Mexico and New York. ING fired five people in Mexico, said Elaine Clark, a spokeswoman in New York. She declined to specify how many positions were eliminated in New York. The changes won’t affect foreign-exchange trading, she said. ING will shift some positions to London from New York as it prepares for new capital requirements set by the Basel Committee on Banking Supervision, she said. “New York will remain relevant,” Clark said in a telephone interview.

Morgan Stanley to Cut About 1,600 Jobs - (www.bloomberg.com) Morgan Stanley (MS), the financial firm whose shares have declined 45 percent this year, plans to cut about 1,600 jobs amid an industrywide drop in revenue from investment banking and trading. Reductions will occur in the first quarter of 2012 at all levels of the firm, Mark Lake, a company spokesman, said in an interview today. The figure amounts to about 2.6 percent of the 62,648 employees New York-based Morgan Stanley had at the end of September. Chief Executive Officer James Gorman is grappling with Europe’s debt crisis and concern that U.S. economic growth will slow, reducing demand for trading and investment-banking services. Morgan Stanley’s revenue from those businesses dropped 36 percent in the third quarter from the previous three months, excluding accounting adjustments.

Traders Confounded as Volatility Extends Run - (www.bloomberg.com) Duke Buchan III’s $1 billion hedge fund beat U.S. stocks by 46 percent in the decade through March, a period that included the steepest equity-market losses since the 1930s. Then came the selloff in August when global stocks suffered their worst nine-day drop since the 2008 financial crisis. For four days, The Dow Jones Industrial Average (INDU) alternated between gains and losses of more than 400 points, the longest streak ever, and itsintraday swings have averaged twice the level seen during the first seven months of the year. Last week, Buchan told clients he is shutting his firm Hunter Global Investors LP. “Markets seem to be driven more by the latest news out of Europe than by a company’s earnings prospects,” Buchan, 48, said in a Dec. 8 investor letter. “We have not weathered the ensuing volatility well.” Traders who used to profit from price swings are struggling as record stock market volatility shows no signs of abating. Hedge funds are on track to post their second-worst year on record, with managers such as John Paulson seeing bets undermined by Europe’s two-year sovereign-debt crisis and concerns over the U.S. economic recovery.

U.S. Shoppers Foot Bill for Soaring Pay in China - (online.wsj.com) One of the things that's showing up in Christmas stockings this year: higher prices, courtesy of China. After decades as America's go-to destination for low-cost consumer goods, China is undergoing a profound shift. Rapid economic development and a smaller supply of young migrant workers are pushing up labor costs. Tack on rising raw-materials prices, driven largely by Chinese demand, and a strengthening currency, and China-made goods aren't the bargains they used to be. In the past year, labor costs have risen 15% to 20% at Michaels Stores Inc.'s Chinese suppliers, says John Menzer, chief executive of the arts-and-crafts retailer. He says his company has spent much of the year seeking ways to partly offset those increases, such as by grouping goods from different suppliers into a single container to cut shipping costs.

Thursday, December 29, 2011

California’s Revenue Shortfall Will Force Brown to Seek $1 Billion of Cuts - (www.bloomberg.com) California Governor Jerry Brown will cut $1 billion in spending from the current budget, saying the economy won’t produce revenue he built into the plan in June, triggering automatic reductions. Brown said he’ll eliminate a $258 million busing subsidy, take $230 million from aid to public universities, trim $200 million in programs that help the elderly and disabled, and make smaller cuts in child care, library and prison spending. Public schools will lose $79.6 million, the equivalent of a half day of classes. “These cuts to the universities, in-home supportive services, to schools, to prosecution -- they’re not good,” Brown said at a press conference in Sacramento. “This is not how we want to run California.”

Sarkozy plan to prop up sovereigns is worrying - (www.ft.com) Highly sensible was the verdict of many who follow European banks, which face a wave of redemptions in 2012 while many funding markets have dried up. But then up popped Nicolas Sarkozy, the French president, and his particular attempt to prove Einstein correct. Mr Sarkozy suggested that the ECB move meant that banks could essentially backstop governments by borrowing money from the ECB at 1 per cent then lending it to the likes of Italy at 6 or 7 per cent. “This means that each state can turn to its banks, which will have liquidity at their disposal,” he said in Brussels on Friday. There are many grounds to object to this line of argument. One, as my colleague James Mackintosh has argued, is that it would force banks to replicate the bet on eurozone sovereign debt that Jon Corzine made at MF Global with such spectacularly bad results.

Hopes fade for IMF funds boost - (www.ft.com) Prospects for a rapid increase in International Monetary Fund firepower to cope with the eurozone crisis have receded after the Japanese government and the Bundesbank set tough conditions before making contributions. On Tuesday Jun Azumi, Japanese finance minister, said that the EU needed to present a more convincing plan before Japan put more money into the IMF. “The EU must make further efforts to convince markets,” he said. “Without European countries showing exactly how much would be needed to deal with the crisis, we would not be able to move on to the next step involving the IMF”. Mr Azumi’s comments follow an announcement at last week’s EU summit that European countries would contribute €200bn to the IMF through their central banks, significantly increasing the fund’s current available lending firepower of around €290bn. European officials said they expected non-European countries including the big emerging market nations to contribute an equal amount.

Italy Sells $3.9 Billion of Five-Year Bonds at Highest Yields Since 1997 - (www.bloomberg.com) Italy had to pay the most in 14 years to sell five-year bonds as Parliament rushes to pass a 30 billion-euro ($39 billion) budget plan that Prime Minister Mario Monti says will bring down record borrowing costs. The Rome-based Treasury sold 3 billion euros of the bonds, the maximum for the sale, to yield 6.47 percent, the most since May 1997 and up from 6.29 percent at the last auction on Nov. 14. Demand was 1.42 times the amount on offer, compared with 1.47 times last month. Monti’s Cabinet approved a sweeping budget plan on Dec. 4 aimed at raising revenue and boosting Italy’s anemic growth to persuade investors Italy can tame the region’s second-biggest debt and avoid a bailout. Parliamentary committees signed off on the amended plan last night, paving the way for a vote this week in the lower house. Monti has warned that failure to approve it could lead to Italy’s “collapse” and threaten the survival of the single currency.

US depositors flee foreign-owned banks - (www.ft.com) Foreign-owned banks operating in the US have suffered their largest six month fall in deposits on record in what some analysts have described as a “flight to safety” from European banks to domestic institutions. Cash on deposit at foreign-owned banks fell $291bn, or 25 per cent, to $879bn from the end of May to the start of December, the first time deposits in the sector have fallen for six consecutive months since 2002, according to Federal Reserve data. “We have heard of a lot of US companies that were doing business with non-US banks looking at the news, and saying I want to be somewhere safer,” said Matt Burnell, large-cap US bank analyst at Wells Fargo. “For those companies somewhere safe means domestic banks like PNC, JP Morgan and US Bancorp that are perceived to have higher quality deposit franchises.”

On what will come of MF Global: There will be civil suits - by employees, customers, the SEC, and the CFTC. There will be administrative actions. But the dog that has refused to bark for about a decade is the Justice Department.On the Justice Department's refusal to take on difficult prosecutions: This is the most pathetic excuse for not prosecuting. Of course it's hard. They would be going up against the best criminal defense lawyers in the world. Those lawyers wear nice suits. They are very glib. They are great talkers.On whether convictions are possible: In the S&L crisis, which were more complex frauds in many ways, we convicted over 3000 individuals - 1000 of those convictions were of elite executives. We prioritized with the FBI and Justice Department to go after the worst 600 to 700 cases. We prosecuted all of them. We had a 90% conviction rate. Yes, it is very hard. It takes many years. At the peak, we had over 1000 FBI agents working the S&L crisis. Right now we have 350 agents working all aspects of fraud out of this crisis, including all the little mortgage frauds. It is absurd.

Two CA title officers hit with 606 felony and misdemeanor counts - (www.latimes.com) A Clark County grand jury in November indicted two Southern California title officers on a combined 606 felony and misdemeanor counts, alleging the two headed a vast "robo-signing" operation in which tens of thousands of foreclosure documents were fraudulently filed in the Las Vegas area. "This is real important stuff because it asserts that bank employees and companies that work for banks actually have to follow the law, and if they break the law, they can be indicted," said Kurt Eggert, a Chapman University law professor. Nevada has been one of the states hit hardest by the housing bust. Las Vegas residents have seen the worst home-price declines of any major metro area in the nation; prices are down 60% from the August 2006 peak, according to the Standard & Poor's/Case-Shiller index. Vegas also had the highest foreclosure rate of any major U.S. city for 22 months until October. About 58% of Nevada homeowners are underwater on their homes, which means they owe more on their mortgages than the current values of their property. That is the highest percentage nationwide, according to CoreLogic, a Santa Ana mortgage data tracker.

SIX (6) Wal-Mart heirs are wealthier than entire bottom 30% of US - (www.latimes.com) Does an annual income of $150,000 make a person rich? Depends on whom you ask. As Americans fret over how to tax the rich and Occupy protesters rail against the 1%, new reports find that the definition of wealth is a tenuous one. First, some context: The wealth of the 1% is about 225 times greater than that of the typical family, compared to 125 times in 1962, according to analysis from labor economist Sylvia Allegreto with UC Berkeley. And based on the most recent data, the cumulative wealth of the Forbes 400 was $1.54 trillion -- equal to the worth of the bottom half of American families. That means the $69.7 billion held by the six Walton relatives of Wal-Mart founders Sam and James Walton in 2007 was equal to the net worth of the bottom 30% of Americans, according to Allegreto.Today, she said, the Walton pot is estimated to be around $93 billion.

An Unthinkable Risk at a Brokerage Firm - (www.nytimes.com) Are customer accounts at brokerage firms safe? Until the collapse of MF Global, that’s a question I thought I’d never have to ask. Brokerage firms are required by law to maintain segregated accounts holding all client assets, including stocks, bonds, mutual funds, money market funds and cash. The law was passed after the 1929 crash, in the depths of the Depression, to make sure that customer assets were there at all times, ready to be disbursed even if everyone asked for their money at once. This obligation to protect customer assets “is considered sacrosanct,” Robert Cook, director of the division of trading and markets at the Securities and Exchange Commission, told me this week. “It’s considered a sacred obligation.” Lehman Brothers may have engaged in many foolhardy practices, but even in the firm’s last days, when officials were desperate for cash, no one dared touch customer assets, which remained safely segregated despite the firm’s collapse.

Foreclosure fees pad Colorado counties' funds - (www.denverpost.com) Colorado counties for years have sat atop a pile of cash largely generated on the backs of homeowners, banks and businesses plowed over by the state's foreclosure tidal wave. The public trustee system has generated huge profits by charging the public more than what's needed to actually run its offices, according to financial documents provided by several counties and reviewed by The Denver Post. What's more, each trustee office has generated so much money that it has a bank account set aside with enough funds to maintain the office for a whole year — salaries included — in the unlikely event that not a single foreclosure gets filed. The money — likely reaching into the tens of millions of dollars statewide each year — comes mostly from the multitude of fees that county public trustees by law charge in every foreclosure case they handle.

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states. Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

Felix Zulauf: A Coming Depression Will Lead To The Collapse Of The Euro - (www.businessinsider.com) Perhaps 3 countries will leave the euro next year. Feliz Zulauf was interview by King World News over the weekend and offered some excellent macro insights on the situation in Europe. The Swiss macro money manager, unfortunately, has been right about the Euro’s developments over the last few years and has a very dire outlook. He says the periphery is entering a periphery that will eventually lead to several nations leaving the currency union: “I think the periphery goes into depression. When you look at a country like Greece, it’s now been in recession for three years. GDP is probably down 15% from the top. The stock market is down 90%, which is the equivalent of 1929 to 1932 in the US. This is depression-like. …Then I expect next year one country, probably three, will exit the euro. That will make 2012 very interesting because there are no rules on how to exit the euro. A country exiting the euro means the next day, when they exit, their banking system is bust. That means the banking system has to be immediately nationalized in a new currency.

Hedge fund redemptions surge after losses - survey- (www.reuters.com) Hedge fund investors finally seem fed up. After months of heavy losses, big and small clients asked funds to return $9 billion in October. That number is three times as large as the $2.6 billion (1.7 billion pounds) they pulled out in September, data from BarclayHedge and TrimTabs Investment Research show. The dramatic jump in redemption requests shrank the industry to $1.66 trillion, its lowest level in nearly two years and well below its $2 trillion peak, the researchers said in a report released on Monday. The redemptions are the largest since July 2009 when $17.8 billion was removed. Hundreds of hedge funds had a deadline for clients to pull out money in October and dozens of clients opted to use it after seeing five straight months of losses.

ECB Overnight Deposits Hit Fresh High - (online.wsj.com) Euro-zone banks' overnight deposits with the European Central Bank hit a fresh high Friday for this year as markets reflected disappointment over the ECB's refusal to step up its bond purchases or become a lender of last resort to governments. Banks deposited EUR334.905 billion with the ECB Friday, the central bank said Monday, up from EUR310.061 billion Thursday and also higher than the previous 2011 peak of EUR332.79 billion reached Dec. 2. Deposits also tend to rise with the approach of the ECB's reserve period for commercial banks. The current reserve, or maintenance, period will end Tuesday.

Top Earners Not So Lofty in the Days of Recession - (www.nytimes.com) Hold the condolence cards, but the recession cost the rich. The share of income received by the top 1 percent — that potent symbol of inequality — dropped to 17 percent in 2009 from 23 percent in 2007, according to federal tax data. Within the group, average income fell to $957,000 in 2009 from $1.4 million in 2007. Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere.

Monday, December 26, 2011

How a Teacher Retired at 59 With $174,000 Pension - (www.cnbc.com) After nearly 40 years in public education, Patrick Godwin spends his retirement days running a horse farm east of Sacramento, Calif., with his daughter. His departure from the workaday world is likely to be long and relatively free of financial concerns, after he retired last July at age 59 with a pension paying $174,308 a year for the rest of his life. Such guaranteed pensions for relatively youthful government retirees — paid in similar fashion to millions nationwide — are contributing to nationwide friction with the public sector workers. They have access to attractive defined-benefit pensions and retiree health care coverage that most private sector workers no longer do. Experts say eligible retirement ages have fallen over the past two decades for many reasons, including contract agreements between states and government labor unions that lowered retirement ages in lieu of raising pay.

A Romance With Risk Brought on the MF Global Panic - (www.cnbc.com) Soon after taking the reins of MF Global in 2010, Jon S. Corzine visited the Wall Street firm’s Chicago offices for the first time, greeting the brokers, analysts and sales staff there. One broker, Cy Monley, caught Mr. Corzine’s eye. Unknown to MF Global’s top management in New York, the employee, whose job was to match buyers and sellers in energy derivatives, was also trading a small account on the side, using the firm’s capital. “How are you making money on side bets? What else are you guys doing to make money here?” Mr. Corzine asked enthusiastically, his eyes widening, the broker recalled. The new chief executive grabbed a seat and spent an hour questioning Mr. Monley as other top executives from New York hovered impatiently nearby. Although Mr. Corzine had been a United States senator, governor of New Jersey, co-head of Goldman Sachs and a confidant of leaders in Washington and Wall Street, he was at heart a trader, willing to gamble for a rich payoff.

Banks in ‘Vicious Cycle’ With Government Cash - (www.bloomberg.com) European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders. The European Banking Authority ordered the region’s banks on Dec. 8 to raise 115 billion euros ($154 billion) by June. Faced with dwindling profits and unable to tap capital markets to sell new shares, firms may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts.

No One Says Who Took $586B in Fed Swaps - (www.bloomberg.com) For all the transparency forced on the Federal Reserve by Congress and the courts, one of the central bank’s emergency-lending programs remains so secretive that names of borrowers may be hidden from the Fed itself. As part of a currency-swap plan active from 2007 to 2010 and revived to fight the European debt crisis, the Fed lends dollars to other central banks, which auction them to local commercial banks. Lending peaked at $586 billion in December 2008. While the transactions with other central banks are all disclosed, the Fed doesn’t track where the dollars ultimately end up, and European officials don’t share borrowers’ identities outside the continent. The lack of openness may leave the U.S. government and public in the dark on the beneficiaries and potential risks from one of the Fed’s largest crisis-loan programs. The European Central Bank’s three-month dollar lending through the swap lines surged last week to $50.7 billion from $400 million after the Nov. 30 announcement that the Fed, in concert with the ECB and four other central banks, lowered the interest rate by a half percentage point.

Homebuyers Could Wind Up Paying for Payroll Tax - (www.cnbc.com) At face value, it seems like an easy, albeit creative way to pay for the extension of the payroll tax cut. Raise the fees that banks pay mortgage giants Fannie Mae and Freddie Mac to guarantee home loans. These are called “guarantee fees,” and are supposed to cover mortgage defaults in a normal housing market. (I say this because obviously in today’s foreclosure-ridden landscape they don’t even come close, which is why the two are currently in debt to U.S. taxpayers for a collective $152.7 billion). But back to the original premise: Senate Democrats and House Republicans like the idea, which under the Senate proposal would raise $38.1 billion, according to Pennsylvania Senator Bob Casey. Senate and House versions differ on how much the fees would be raised, but both proposals are additions of less than one percent of the loan.